Posted on Feb 13, 2024, 08:35 by Dave Toth

MAR 10-Yr T-NOTES

Today’s sharp decline reaffirms our larger-degree peak/correction count introduced in 03-Jan’s Technical Blog and leaves today’s 111.07 high in its wake as the latest smaller-degree corrective high this market is now minimally required to recoup to arrest the 7-week decline and possibly define this decline as a complete 3-wave and thus corrective event within a major BASE/reversal-threat environment.  Per such, we advise shorter-term traders to trail their short-term bear risk parameter from 07-Feb’s 111.165 high to a level just above today’s 111.07 high.

Former 110.26-area support is considered new near-term resistance ahead of further and possibly surprising losses straight away.

The daily active-continuation chart of the futures contract (above) shows today’s clear resumption of what we believe is a major (B- or 2nd-Wave) correction of Oct-Dec’s (suspected initial A- or 1st-Wave) rally from 105.105 to 113.12, the 50% and 61.8% retraces of which cut across at 109.11 and 108.13, respectively.  These merely derived Fibonacci relationships are NOT considered support, but rather areas “of interest” around which to beware a relapse-countering bullish divergence in momentum needed to stem the nearly-two-month decline and perhaps reject/define a more reliable level and condition from which a favorable risk/reward opportunity may be presented from the bull side.  Until/unless such a momentum divergence arrests this clear and present and developing decline, its remaining downside potential is considered indeterminable and potentially severe.

From a 10-yr yield perspective below, the opposite is at work, with today’s clear break above 24-Jan’s 4.178% high reaffirming a larger-degree correction of Oct-Dec’s rate decline from 4.995% to 3.796%.  Here too we’ve noted Fibonacci progression and retracement relationships ranging from 4.273% to 4.497% around which we will keep a keen eye out for a rate recovery-stemming bearish divergence in momentum needed to arrest the rate spike, contribute to a count that contends this spike is a corrective/consolidative event, and re-expose Oct-Dec’s downtrend in rates that preceded it.  Until/unless such a countering bearish divergence in mo breaks the clear and present move higher in rates, this move higher should not surprise by its continuance or acceleration straight away and to level indeterminately higher.

On a much broader scale however and as discussed back in Nov and Dec, the combination of the contract’s:

• gross failure to sustain Sep/Oct’s break below Oct’22’s key 108.26-area support-turned-resistance
• bullish divergence in weekly momentum
• historically bearish levels of market sentiment/contrary opinion, and
• an arguably complete and massive 5-wave Elliott sequence down from Aug’20’s 140.13 all-time high

remains intact as a unique and compelling one that suggests Oct-Dec’s rally is the initial (A, or 1st-Wave) of a major correction or reversal HIGHER in T-Note prices and lower in yields.  This further suggests that the current price relapse from 27-Dec’s 113.12 high and rate recovery is a (B- or 2nd-Wave) CORRECTION that ultimately warns of sharply higher prices and lower rates in the quarters ahead.  But until/unless arrested by a countering momentum failure, the current decline in prices and recovery in rates should not surprise by their continuance or acceleration.

These issues considered, a bearish policy remains advised with a recovery above 111.07 required for shorter-term traders to move to a neutral/sideline position and for longer-term institutional players to pare exposure to more conservative levels.  IN lieu of such strength, further and possibly accelerated losses remain expected.

DEC24 SOFR

The technical construct of and expectations for the Dec24 SOFR contract are identical to those detailed above for T-Notes with today’s 95.90 high the latest smaller-degree corrective high and new short-term but key parameter from which the risk of an interim bearish policy and exposure can be objectively rebased and managed.  In lieu of strength above 95.90, further and possibly accelerated losses should not surprise with a similarly long-term BASE/reversal-threat environment up from 19Oct23’s 95.14 low.